HomeOpinion & AnalysisColumnistsA pro-FDI Monetary Policy Statement

A pro-FDI Monetary Policy Statement


This time I was inclined not to write about the Reserve Bank of Zimbabwe (RBZ)’s August 2014 Monetary Policy Statement (MPS) purely on the basis of fatigue induced by previous encounters with similar statements that promised much, but delivered little.

Omen Muza

But then I realised that if the truth be told, this is not a “usual-suspect” kind of MPS.

First, it is John Mangudya’s maiden statement, so I think he deserves both an ear and a chance as he embarks on a torrid journey to sustain financial sector stability under very difficult circumstances.

Secondly, it comes at a time when the country is desperate for solutions so it was always going to be a much-anticipated policy statement.

Thirdly, having come straight from the banking sector where he was once Bankers’ Association of Zimbabwe (BAZ) president, Mangudya would be quite familiar with the banking sector’s real challenges and is therefore more likely — and expected — to offer informed solutions.

Lastly, at a more personal level, his minimalist, less-is-more theme of “back to basics” appeals to my sense of propriety. Against this background, rather than critique it, I chose to highlight what I consider to be some of the salient points (outside the issue of non-performing loans) of the statement and my views about them.

The policy statement takes note of and is supportive of the efforts by banking institutions to further the objectives of financial inclusion by leveraging mobile technologies to reach out to the unbanked at lower costs.

Banks are also encouraged to pursue agency banking initiatives in order to enhance financial inclusion.

The RBZ further urges banking institutions and Mobile Network Operators (MNOs) to work towards infrastructure sharing while competing on the basis of service delivery.

The big question is whether interoperability will happen easily without some form of regulatory prodding given market players’ current self-centred competitive instincts.

Aligning capital with risk levels
The segmentation of banks into three tiers (Tier I — $100m, Tier II — $25m and Tier III – $7,5m) for the purpose of compliance with minimum capital requirements is probably one of the more important aspects of this monetary policy statement as it aligns capital requirements with the levels of risk assumed.

Given the country’s significant funding needs, there should be room for every financial institution to play its part as long as the playing field is clearly defined and marked, as opposed to the current one-size-fits-all scenario whereby some players end up not playing any meaningful role because they spend all their energy trying too hard to meet needs which are above their inherent capability.

CEO Forum
While the RBZ’s agreement with BAZ to form a forum which will, on a quarterly basis, review bank charges, interest rates and the credit reference system is laudable for its immense potential to promote ongoing dialogue and a healthy exchange of viewpoints, I was left with more questions about it than answers.

Couldn’t this have been done under the aegis of BAZ as currently constituted? Is the Memorandum of Understanding (MoU) back, only under a different name and format; and does that imply a failure of self-regulation on the part of BAZ? How different will the Banks CEO Forum be from the BAZ and what will it achieve that the BAZ couldn’t? I need some serious schooling on this.

Re-orienting Exchange Control
A notable feature of this policy is its effort to re-orient the role of Exchange Control to include that of facilitating investment and business transactions.

It’s about time. Exchange Control practitioners have always had this ugly reputation as police details or rigid gatekeepers. I should know because I was once a head of Exchange Control also with responsibility for international banking/structured trade finance.

It was never easy to balance the rigours of Exchange Control on the one hand and business development goals on the other.

Reduction of Nostro balances from 30% to 5%
A far as seeking to improve local liquidity is concerned, this is a rational move, but as long as we do not deal with the fundamentals that make us an overly import-dependent country, the money will find its way out again through imports as soon as it lands on these shores.

Cash Exports
Though it is implemented in the context of anti-money laundering measures, the reduction of the cash one can export from
$10 000 to $5 000 at a time must be a triumph for Zimra, which lobbied extensively for such a move citing the need to stem the cash haemorrhage. Whether it will actually improve market liquidity in a meaningful way is another issue altogether.

Another decision which is premised on compliance with anti-money laundering regulations is the limiting of banks’ cash holdings to 15% of FCA balances, which I also see as a way of indirectly encouraging the use of plastic money.

Pro-Investment Policy
The MPS outlines a raft of measures that are designed to encourage capital inflows.

These include removal of restrictions on capital remittances and the increase in the threshold for approval of offshore loans by Authorised Dealers without prior approval by the RBZ from $1 million to $7,5 million.

The policy statement also vindicates BancABC when it notes that against the backdrop of a perceived high country risk profile, regional and international investments by local companies have the opportunity to unlock debt and equity capital as was the case with the Atlas Mara transaction.

While the removal of the level of participation by foreign investors on primary issuance of bonds and participation in the secondary market will improve liquidity, it is also supportive of plans by the Zimbabwe Stock Exchange to introduce a bond market by the end of 2014.

The MPS also encourages the participation of Zimbabweans in the Diaspora by permitting them to invest in any listed counter without any limit.

Given the liquidity challenges facing the country, the natural (or knee-jerk) reaction of the regulators would have been to tighten exchange controls, but that was not the case. Instead, all-in-all, what we have is a decidedly pro-investment monetary policy.

Thumbs up to the RBZ governor for a credible maiden effort!

Feedback: omen.muza@gmail.com. Omen N Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8

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